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After Solyndra, Should Congress End - Or Change - Loan Guarantees?

September 21, 2011

By Ben Boychuk

THE ISSUE: The bankruptcy filing of Fremont-based Solyndra in August has cast harsh new light on the U.S. Department of Energy’s loan guarantee program. The solar panel maker received $534 million in loan guarantees. Now Congress is investigating whether the company received special favors from the Obama administration.

After Solyndra, should Congress end – or change – loan guarantees?

Ben Boychuk: End ’em, but…

Government shouldn’t be in the business of picking winners and losers. And Solyndra was a loser even before President Barack Obama appeared for his now-famous May 2010 photo op at the company’s East Bay plant.

Solyndra, the president proclaimed just weeks after an audit by PricewaterhouseCoopers questioned the company’s long-term prospects, was “leading the way toward a brighter, more prosperous future.” In fact, Solyndra’s business model rested on faulty assumptions about the long-term price of silicon, which is a key component for constructing traditional solar panels. Solyndra’s fortunes fell with the price of silicon, and taxpayers were left with the bill.

Of the green-energy loan guarantee program, Obama went on to say: “We can see the positive impacts right here at Solyndra.”

Like the man said, yes we can! But they are slow learners in Washington. Last week, the Department of Energy approved a $1.2 billion loan guarantee for Abegnoa Solar’s 250-megawatt Mojave Solar Project. The deal comes just a year after federal officials provided a $1.45 billion loan guarantee for that project and another in Arizona. The California project is supposed to create up to 1,162 temporary construction jobs and 63 permanent positions, according to the federal Bureau of Land Management. Do the math.

As critical as we should be of these crony capitalist misadventures, that doesn’t mean the federal government should be out of the innovation game. Quite the opposite.

Steven F. Hayward, a resident scholar at the American Enterprise Institute, says the feds are undertaking far more promising energy initiatives. In particular, he points to the Advanced Research Projects Agency-Energy (or ARPA-E) modeled after the Pentagon’s famed DARPA, which helped develop the Internet and sped along advances in microprocessors. ARPA-E is funding advanced battery, solar and electrofuel research.

“But,” informs Hayward, “ARPA-E’s total budget was only $400 million in its first year – less than the Solyndra loan.” I heard much the same from Ted Nordhaus, co-founder of the left-leaning Breakthrough Institute in Oakland. “When we first started, we thought you would spend $300 billion over 10 years and you could get a clean-energy economy,” he said. “As we got clear about the technological problems, we got much more interested in innovation, as opposed to deploying what we currently have.”

Fact is, we’re years away from figuring out what forms of “green energy” are commercially viable. Instead of throwing perfectly good tax dollars at today’s technologies, perhaps Congress should put resources into basic research and development.

Ben Boychuk is associate editor of the Manhattan Institute’s City Journal,

Pia Lopez: No, mend ’em …

The debate over whether to encourage manufactures in the United States is as old as the nation. Alexander Hamilton, the first U.S. treasury secretary, supported an infant industries policy of “prudent aids and encouragements on the part of the government.”

Today, the issue is how to spur energy innovation to reduce our dependence on fossil fuels.

Ben supports government investment in basic science research. But that’s only one piece of the innovation continuum.

With highly complex technology, energy projects have very large upfront costs. As the American Energy Innovation Council points out, “It is one thing to prototype a new smartphone; it is quite another to prototype a new nuclear reactor.” That means that government support also is needed for:

• Early pilot demonstrations, and

• Getting new technologies from prototype and pilot stage to the first commercial-scale production facility.

Ben mentions the Advanced Research Projects Agency-Energy (ARPA-E), which aims to translate early-stage science and engineering work into products with commercial potential. It goes far beyond basic research – as it should.

Then there’s the third piece: getting to commercial scale. That’s where Solyndra enters the picture. President George W. Bush and a Republican Congress enacted a federal loan guarantee program in the Energy Policy Act of 2005. That program to date has backed $38 billion in loans for 40 projects – solar, wind, geothermal, nuclear.

Solyndra, with a loan guarantee of $535 million, is a minuscule part of that portfolio, and the only company to go belly-up.

Ben, with 20/20 hindsight, believes Solyndra was a “loser” from the beginning. But the federal government wasn’t the only one that saw promise in Solyndra’s cylindrical thin-film solar cells – ideal for large, flat rooftops and avoiding the high cost of polysilicon in conventional solar panels.

Solyndra attracted more than $961 million in private capital, landing in the Wall Street Journal’s 2010 ranking of Top 50 venture-capital-backed companies. It also was among Technology Review’s “50 Most Innovative Companies in the World.”

So what happened? Polysilicon prices dropped. Chinese companies (with credit from the China Development Bank) flooded the market with conventional solar panels.

Do the woes of this one company mean Congress should cut off loan guarantees to encourage energy manufacturing in the United States? No way. Certainly, Congress should demand a transparent, fair application and oversight process to prevent “crony capitalism.”

Instead of going all wobbly on loan guarantees, Congress should continue to embrace a “no risk, no gain” philosophy when it comes to scaling up cutting-edge energy technologies.

Original Source:



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